Chancellor Franz Vranitzky presented his government's resignation to President Thomas Klestil after suffering heavy election losses to Jorg Haider's far-right Freedom Party and smaller opposition groups.
Following Sunday's election result, which dealt the coalition parties their worst parliamentary hand since 1945, the negotiating process could be tortuous. But the conservative People's Party, papering over a split in its ranks, rejected attempts by Mr Haider to exploit the situation with a highly conditional offer of co-operation.
The People's Party leader, Erhard Busek, said that an alliance was not on the cards. 'Haider's offer has no attraction for us; it is mere scheming,' he said after a meeting of the party executive. 'In today's meeting Haider was not a subject for anybody.'
On Monday, Mr Haider privately met Mr Busek's party rival, Alois Mock, the Foreign Minister. Yesterday he offered to co-operate with a minority conservative government on the condition that Mr Busek was dumped. He stopped short of proposing a formal coalition, which would bring his far right into power for the first time, suggesting instead to delegate non-party experts into a new minority government while remaining in opposition.
The Freedom Party will have 42 seats in the new 183-seat parliament, compared to 66 for Mr Vranitzky's Social Democrats, 52 for the conservatives, 13 Greens and 10 liberals.